Japan's GDP Shrinks 1.2%

Third quarter sees 0.3% reduction

Japan's economy contracted by 0.3% in the three months to June from the previous quarter as firms cut spending on new factories and equipment, the government said Sept. 10. On an annualized basis this number translates into a GDP reduction of 1.2%.

It was the first contraction in three quarters for Japan, which has been slowly recovering after falling into the economic doldrums in the early 1990s.

The latest contraction had been expected after a survey used to calculate the GDP revisions last week showed that capital investment by Japanese companies fell in the three months to June for the first time in 17 quarters. Analysts said that a change in sample size of the survey had likely affected the result.

The economy should return to positive growth in the third quarter of 2007 but the pace may be sluggish due to the weakness of the U.S. economy, said Taro Saito, a senior economist at NLI Research Institute said. "An export-led recovery may be difficult in the latter half of the year," he said.

Copyright Agence France-Presse, 2007

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